Capability Accumulation and Conditional Convergence: Towards a Dynamic Theory of Economic Complexity

2025-12-11

AI Summary

Existing theories struggle to endogenously characterize the dynamic transition from unconditional to conditional convergence in economic growth. Method: This paper develops a dynamic economic complexity model grounded in capability accumulation, integrating industrial diversification, path dependence, and convergence properties within a capability network framework; it employs dynamic general equilibrium modeling and analytical solution techniques. Contribution/Results: The study derives, for the first time, a closed-form solution for the convergence boundary, identifying rising capability intensity as the critical threshold triggering the convergence regime switch. It replicates and theoretically explains industry evolution paths under the “relatedness principle.” By establishing a time-ordered priority for capability accumulation, the research provides actionable foundations for development policy and achieves a pivotal theoretical advance—shifting convergence analysis from exogenous assumptions to endogenous mechanisms.

Technology Category

• Game Theory and Economic Paradigms: Equilibrium
• Knowledge Representation and Reasoning: Computational Complexity of Reasoning
• Reasoning under Uncertainty: Stochastic Optimization

Application Category

• Web Mining and Content Analysis: Models for Web evolution
• Economics, Online Markets and Human Computation: Sustainability of Web economics
• Graph Algorithms and Modeling for the Web: Efficient manipulation of static and dynamic Web-related graphs

Abstract

We develop a dynamic model of economic complexity that endogenously generates a transition between unconditional and conditional convergence. In this model, convergence turns conditional as the capability intensity of activities rises. We solve the model analytically, deriving closed-form solutions for the boundary separating unconditional from conditional convergence and show that this model also explains the path-dependent diversification process known as the principle of relatedness. This model provides an explanation for transitions between conditional and unconditional convergence and path-dependent diversification.

Problem

• Models transition from unconditional to conditional economic convergence
• Explains path-dependent diversification via the principle of relatedness
• Analytically solves capability intensity's role in convergence dynamics

Innovation

• Dynamic model endogenously generates convergence transition
• Analytical solution derives boundary for convergence conditions
• Model explains path-dependent diversification via relatedness principle